How could one employee make a string of such collosally bad decisions that he could destroy an organization that had stood strong for 233 years—that had financed the Louisiana Purchase? Fingers are being pointed in all directions. A reprehensible demonstration of greed and irresponsibility is Barings' take on the situation. Outsiders blame the company itself for not keeping closer tabs on its young star. But one important issue languishes on the sidelines of the discussion—shouldn't Leeson simply have known better? Wouldn't a basic code of conduct tell an employee that it is plainly wrong to take unjustifiable risks with other people's money? Isn't there some sort of business commandment that states: Thou shalt not play around with unhedged bets on the Nikkei if said bets may completely wipe out your company?

Sweep away the clutter of financial jargon and you'll find that the Barings debacle occurred not because an employee sold futures options in a "straddle," or because he "shorted" derivatives on Japanese interest rates and government bonds. What it boils down to is that Barings collapsed because an employee made an unethical decision.

Few employees are in positions of such unrestrained power that their choices could destroy an entire company. Yet the fact is, employees do make a myriad of choices every day, which—if unethical—can damage a company's productivity, profits and reputation. Unethical decisions come in a variety of packages, and they aren't all necessarily flashy: The employee who conducts personal business on company time. The line worker who fails to report a product flaw in order to meet a deadline. The manager who accepts a gift from a customer, and as a good will gesture, puts a rush on their order. Alone, these aren't organization-threatening actions. But when these misdemeanors become endemic to the company, you've got trouble.

It's up to HR to train, educate and communicate with employees on rights and wrongs in the workplace. After all, ethics is one topic that begins and ends with people. "I don't know how you'd separate standards of behavior from HR," says Roxane Kerr, director of HR, North America for Reston, Virginia-based Lucas Industries. "I don't even know how you'd separate a discussion on ethics from the standards you hold people to. HR and ethics have to be linked. They have to be integrated."

The workplace of the '90s makes an ethical employee base crucial.If a company's competitive advantage rests on the shoulders of the people it employs—and currently, that tends to be the case—then these people must be entrusted to do the right thing, even when no one is looking. Especially when no one is looking, because in these days of lean, mean operations, employees are making more decisions on their own than ever before.

We celebrate the growing empowerment of employees. But as we forfeit control, we must also make sure that these employees' knee-jerk reactions will be to always act ethically. "If you're walking down the hall in your company and you see a pool of oil on the floor or a wire dangling from the ceiling, you wouldn't think twice—you'd do something," says Glenn Coleman, manager of ethics communication and education for Dallas-based Texas Instruments. "You'd say that you had a responsibility to take care of the problem because you discovered it. We're trying to bring ethics to that same level, where you just instinctively bring it into your decisions. You know you're successful when you finally get it to that point."

A good ethics program can help successfully guide employees through the decision-making process. Where once managers called the shots and employees followed suit, employees now need that support system to clear up any questions they have—questions that managers are no longer around to answer.

Well-communicated guidelines help set the parameters for employees. In 1992, Wilmington, Delaware-based Hercules Incorporated, a supplier of specialty chemicals and engineered polymers, extended a restricted ethics policy that previously had been a part of a government initiative. The program now reaches the commercial side of its business—and Hercules has found that employees genuinely appreciate the guidelines. "In a lot of cases, people just don't know what the parameters are," says Dominick Didonna, chairman of the ethics committee. "Through the program they get fairly good guidelines, on which they can operate on a day-to-day basis. That's a very big help to people. A lot of times they've been doing something a certain way for a certain period of time, and they're just not aware it may be a violation."

An important part of a corporate ethics program is just increasing awareness levels. Companies with these programs find that many "unethical" decisions are a result not of deliberate commission, but of ignorance. Bernard Fried, corporate ethics officer for Lucas, says that many employees consult him not to work through the grayer ethics issues, but to gain information so that they don't unknowingly violate the legal or ethical codes. "A very major objective of our ethics program is to instill confidence in our employees that they are knowledgeable about the laws," says Fried. "People sometimes can do something that is unethical or unlawful without any intention or knowledge that they're doing something wrong. I think they see [the program] as a tool."

As employees learn to use this tool, they become more confident in the self-regulating atmosphere of the new workplace. A clearly explained code of ethics plays a pivotal role in employee empowerment. In addition to a 24-hour ethics hotline, monitored by Fried, Lucas provides each of its employees with a handbook detailing its code of ethical conduct. The booklet covers such topics as personal conflicts of interest; bribery, gifts, gratuities and entertainment; kickbacks; accurate time reporting; and additional laws and regulations.

Kerr says the handbook allows employees to clear up many questions on their own—they can flip to the section they need, get the information they want, and head back to work. "You're empowering your people to be self-guiding and self-directing in making decisions because you've given them a sort of reference book in the guidelines," says Kerr. "I think we're giving people greater latitude in their ability to self-monitor their activities."

Didonna agrees: "By telling people what the parameters are that they can work within, I think they do feel more empowered. They know that if they are within set parameters, they can continue to operate without worrying about their actions."

Texas Instruments' Coleman says that ethics must play a major role in the newly reorganized workplace. In 1987, the company instituted a formal ethics program in response to what it saw as an increasingly complicated business market. "There's a lot of pressure in today's workplace. It's a very competitive place. People feel pressure to produce. What we have to do is make it very clear to our employee base what our expectations are." Coleman says the ethics program emphasizes such points as not shipping products before they're ready, not taking short cuts and not skipping over product tests.

In today's pressure-cooker work environment, HR must spell out for employees that ethics come before deadlines or bottom lines. It's a message that can be overlooked in the work rush: In a landmark study of more than 4,000 employees conducted by the Washington, D.C.-based Ethics Resource Center, nearly one-third of respondents said they felt they'd been pressured to violate company policies in order to achieve business objectives. Half of them said they were put under such pressure periodically. It's good to dispel even the impression among employees that management encourages unethical behavior in obtaining business objectives.

Texas Instruments makes its work ethic crystal clear. Says Coleman: "Basically, we expect our employees to know what's right and to do what's right." To cover all his bases, Coleman continually revises TI's code of ethics to address issues that come up as the workplace changes. He says that a strong ethics program is necessary for his company, which has become increasingly pared down. "In an empowered workplace, which we have, where decisions are being forced down to the very lowest level, the employee has to understand the importance of making that decision right the first time," he says. "The rules are changing. We've lost some of our checks and balances—you don't have a manager reviewing every decision. Ethics are becoming more and more important."

The Ethics Resource Center survey demonstrated just how important a strong ethical employee base is. The study provided some startling revelations: A full one-third of employees reported that they had witnessed various forms of misconduct in the past year, which violated company policy or the law. The most common transgressions were: lying to supervisors (56%), lying on reports or falsifying records (41%), stealing and theft (35%), sexual harassment (35%), abusing drugs or alcohol (31%) and conflicts of interest (31%). If one-third of employees witnessed misdeeds conducted openly, imagine how many unethical decisions are being made behind closed doors.

Successful ethics programs are user friendly.No matter how complete your ethics program is, it won't do any good if employees are turned off by it. One sure way to lose employees' interest is to shove a complex, dry document under their noses. Ethics guidelines must be easy to use and—dare we say it?—even inviting.

First of all, you should ensure that your ethics booklet is a living document. It should be constantly updated to address issues as they come up. Continual revision will help weed out policies that no longer have a place in the code as well as breathe fresh air into old but still relevant guidelines.

Lucas' ethics committee reviews its code once a year and reissues it with any changes. This year, in response to increased awareness on the subject, the company is adding guidelines on sexual harassment.

Hercules also worked to make its guidelines more user friendly. Looking over its policies and procedures, the ethics officers realized that while the company had ethical guidelines covering every aspect of doing business—from purchasing and sales to safety and health—these rules were never pulled together into one, easy-to-use source. "Now they're coordinated in one brochure," says Didonna. "It helps people."

In addition to its code of ethics—which has been translated into 10 languages for worldwide distribution, Texas Instruments has a series called Cornerstone Booklets. Designed to allow employees to access the information they need as quickly as possible, each booklet covers just one topic. There's one on ethical leadership, one on personal rights, one on gifts, travel and entertainment and one on conducting business with the U.S. government.

But TI wants to make sure employees have a variety of enticing entry points to ethics material. For TI's techie group, the company established an online "ethics menu," which Coleman is more than happy to guide first-time users through. "Everything the ethics office does goes right into that menu," he says. "If a manager wants to brief a department on a certain ethics issue, I'll get on a blind screen, lead them through the keystrokes, get them on the right page, and they can print off a copy and have it right there in their hand. People like that, because then it's more than word of mouth. They have the document to back them up."

An online ethics newspaper provides TI employees with further reinforcement. The department writes an article on ethics once a week—there are now nearly 300 articles on almost any subject imaginable. These too can be printed off the screen. "We want employees to have a good, comfortable feeling in their gut that not only did they hear a voice say it's OK, but they have it in writing so they know they made a good decision," says Coleman.

Ethical advice must be available from a variety of sources—and employees must feel confident accessing it.Some employees follow instructions better when they hear them said out loud. Others want everything in writing. A good ethics program provides both verbal and written reinforcement. It offers a variety of entry points for employees who want to learn about or discuss ethics.

Besides its Cornerstone Booklets and the online info, Texas Instruments employees may access ethics advice and information in a number of other ways.

For instance, an employee can drop by the ethics office for a personal meeting with an officer. If the employee is a bit squeamish about being seen walking into the ethics office, Coleman will rendezvous with the employee elsewhere on TI property—he's had meetings in both the lobby and the parking lot. If the employee is wary of a person-to-person interview, a quick dial to 1-800-33ETHIC will reach the office. Still too personal? Workers can also air concerns through company internal mail, or by writing to the company's downtown Dallas post-office box. Confidential E-mail is also available—it will reach the ethics office without saying where the message came from. "We try to have a number of ways for people to contact us that are totally safe for them. It works. We get messages through all those sources," says Coleman.

"There must be a system in place through which employees can get help with ethically difficult situations." —Michael Hoffman, Center for Business Ethics

Like TI, Lucas also provides a number of options for employees. Besides the hotline, employees may mail questions to a private post-office box or fax in concerns. Although Fried says he encourages employees to go to their supervisors first with any ethical considerations, he acknowledges that this is difficult for many. "The people who call me, in many cases, are for some reason intimidated by the notion of talking to local management. It's easier to anonymously call or to speak to someone they've never met."

That's really key to getting employees to use ethics programs: make them comfortable with the idea. Texas Instruments advertises the ethics office as a source of information—period. Coleman advises employees about ethical decisions relating directly to work (Can I moonlight on the weekends?) but also deals with the grayer issues involving relationships (I've accepted gifts from one of my customers because I have a solid friendship with him. But now I feel like I should make his service a priority because of it.)

But Coleman says he answers every question, whether or not it directly relates to ethics. "If people feel comfortable and safe in asking us the simple questions, then they'll come back to us with the hard ones," says Coleman. He gives as an example a woman who called him with a question on the parking situation. She and Coleman discussed the parking rules for a few minutes—then, before she hung up, the woman told Coleman she had another question—this one was concerning a perceived sexual relationship between a secretary and a supervisor. "It appeared to me that she was just kind of testing me to see if I'm OK to talk to," says Coleman. "Once she determined I was OK, she hit me with the question she really wanted to talk about. That happens more than occasionally."

At Hercules, Didonna says employees also use the hotline to discuss workplace actions they think may be unethical. Although employees are encouraged to consult with management first, the hotline provides another option. It is especially useful for employees who want to report suspected wrongdoing anonymously. "Do we turn around and tell people that they should report on their neighbors? No—unless they see an action that they feel is contrary to the best interests of the company. Then [the hotline] is a mechanism to detect and correct [wrongdoings]."

Companies with ethics programs do have a higher level of employees reporting misconduct. For instance, in the Ethics Resource Center survey, 57% of employees with ethics programs reported the ethical and legal lapses they observed, compared to only 49% of employees whose firms had no such programs. Confidentiality plays a big part: Employees who failed to report misconduct were much more likely to give as their reason "possible retribution or retaliation" from supervisors if they worked for a company without an ethics program (54% vs. 38% with an ethics program).

W. Michael Hoffman, executive director of the Waltham, Massachusetts-based Center for Business Ethics and executive director of the Ethics Officer Association, lists a confidential resource as one of the most important components in an ethics program. "There must be a safe reporting system in place, [such as] a hotline through which employees can call the ethics office to get help with ethically difficult situations, or when they feel they need to report a potential problem that may be going on in the company."

But getting employees to access an ethics officer is only part of an effective program. Employees must feel that their concerns are being taken seriously, and that they're being treated consistently and fairly. William Redgate, vice president of business practices for Wilton, Connecticut-based The Dun & Bradstreet Corporation, says that his office investigates every complaint. Some turn out to be unfounded, but others are legitimate. "If there's a problem, the accountability is to ensure that the problem is resolved as quickly, as fairly and as equitably as possible," says Redgate, who is also president of the Waltham, Massachusetts-based Ethics Officer Association.

These resolutions may include termination, loss of wages or a promotion freeze. But the penalties must be the same for everyone. If a lower-level employee is fired for lying about her hours worked, a manager who commits the same transgression must also be terminated. Says Hercules' Didonna: "The key is consistency."

However, the ethics committee should not hold the sole burden of solving all problems. Employees can work through many ethical dilemmas on their own if encouraged and taught to do so (see "Texas Instruments Gives Employees a Quick Test"). When an employee comes to him with personal "gray areas," Coleman says he tries to present a variety of possible actions that the employee could take. He helps them weigh the pros and cons of different solutions—demonstrating the advantages and risks. But he leaves the final decision to each individual. "I always try to get them involved in the solution," he says. "I want them to walk away with something they have to do." But Coleman's involvement doesn't stop there. He holds the employee to the decision to make sure that the worker follows through. For instance, if an employee decides to present an unethical situation to his supervisor, Coleman asks him to state the day and time the employee will do so. "I tell them I want them to call me back and tell me how the conversation went. I don't let them off the hook. If they cared enough to raise the issue and have a discussion, then I pick up the responsibility of trying to get this thing through to the end." Just as Napoleon demanded that his men offer two possible solutions to every problem they presented him, so Coleman tries to teach employees to handle as many situations as they can on their own. "Many times, they'll think it over, and they'll cure themselves," he says.

HR must take on responsibility for training, education and communication.Although a usable ethics code and an accessible ethics office help get the message out, a truly successful effort requires active communication, education and training. It's like the old adage: If Mohammed won't come to the mountain, the mountain must go to Mohammed. Some employees simply aren't going to go out of the way to reflect on their decisions or to ensure they're acting within the ethics code. Yet these are often the employees who need education the most.

An exhaustive communications effort is key to getting the word out. The message must permeate the entire company—from the CEO on down. At Hercules, for example, the chairman didn't just sign the ethics statement—he penned it himself. "We make no bones about the fact that we're going to operate in an ethical environment in an ethical manner," says Didonna. At Lucas, too, the message comes from the highest levels. "We've had top management buy-in. Top management has issued many memos advising employees of their commitment to the ethical program," says Fried.

At TI, ethics orientation begins on an employee's first day. The new kid receives a copy of the code of ethics, a full load of TI ethics publications as well as an ethics briefing. The ethics office continues to reinforce the message with an onslaught of communication methods. "We use posters, we use little stickers, we use wallet cards. We try to use the entire spectrum of communication devices, so that the message is always there," says Coleman.

At Fairview, Pennsylvania-based Flex-Y-Plan Industries Inc., communication on ethics takes the form of leading by example. The office furniture manufacturer makes sure that every employee knows and does the right thing. The company keeps bad apples out—so wrongdoers can't spoil the rest of the work force. "Our basic philosophy is to tell the truth and be as forthcoming as you can in all areas," says Barbara Hutzelman, personnel manager. "When a new employee comes into the workplace, everyone who's already there behaves in a certain way. I think it rubs off."

Most companies with ethics programs extol the virtues of a strong communications effort. And why not? It costs very little to keep the conversation alive, and most feel that the rewards are—if not directly proven—at least tangible. "Does it deter unethical conduct?" asks Dun & Bradstreet's Redgate. "I'd like to think that the more communicating you do, the greater the probability that people are going to make the right decision when the time comes. If people know they have a channel to whom they can go before they make a decision, you're going to cut off at least the probability of a serious disaster."

But communication must be supported by education and training. Last summer, Lucas trained more than 3,000 employees, explaining what they expected of them ethically. Lucas plans this year to have all employees, including new hires, go through an ethics training program that will run about an hour and a half. The session will feature a video in which professional actors play out ethics scenarios including cases covering sexual harassment, environmental practices and the handling of confidential information. "From a training standpoint, it's a lot easier for people to associate with ethical [dilemmas] if they see something that could happen in their own workplace rather than to have somebody just talk about it," says Fried. "I think seeing it played out really enhances people's internalizing the information." The company will follow this up with specialized training for employees working in such functions as marketing, contracts or quality. The training will provide them with further information pertaining specifically to their unit.

Texas Instruments also uses interactive case studies to educate employees. The training package, which will be sent out worldwide, includes a videotape of ethical scenarios and a leader's guide for discussion. Coleman also asks each site or company manager to videotape a strong statement on ethics and include that in the program. This emphasizes the company's ethics commitment on a more tangible level. When responsible actions are promoted by lower-level managers, ethics become not just a mandate handed down from on high but a usable day-to-day guideline for working. "Unfortunately, by the time the ethics message filters down from the CEO level, it gets blurred a little bit," says Coleman. "We need to assert the message on every level."

The ethics training at Hercules lasts about six to eight hours, and covers the ethics policy, the ethics brochure and how to use the help line. Follow-up training educates employees about legal issues. To ensure that no employee slips through the cracks, the ethics coordinators in charge of training provide the office with lists of the people who attended the training, as well as the specific training each worker received. "We get feedback from the training, and we maintain those records to make sure that we know that the population is in fact receiving ongoing training and to see if certain areas need updates," says Didonna. Employees who've been found violating an ethical policy unintentionally are required to attend additional training.

Hoffman, of the Center for Business Ethics, says that the most important aspect of an education program is to teach employees to think independently about ethically sensitive issues. "In this day and age, employees need desperately to have opportunities to think through ethical situations. The training programs need to provide them with tools to think through those issues successfully."

Companies with an ethical employee base reap rewards in recruitment and morale.There are certain companies that employees are proud to work for. Companies that respect their workers and their customers. Companies with good reputations. A history of strong ethical decisions plays a big part in that.

"It gives you a competitive advantage to have a strong ethical reputation," says Coleman. "It's just so incredibly important." Coleman says that Texas Instruments' reputation as an ethical employer has particularly helped the company with recruiting on college campuses. "One reason we're able to pick such good employees—recent graduates—is that they are looking at us and saying 'I want to work for that kind of company.' That ethical reputation helps pull in the top-notch students off the campus. We recognize that, and we use it. We pass out our ethics material to the people we interview."

But an ethical environment also helps keep these employees at a company. It has a lot to do with morale. For instance, ethics programs make a real difference in employee perceptions of management, according the Ethics Resource Center survey. Employees at companies with ethics programs were more likely than employees without such programs to believe that the ethical commitment of their CEO (65% vs. 47%), senior management (70% vs. 52%) and direct supervisor (77% vs. 58%) was "about right."

Perhaps an ethical environment encourages morale because a good ethics program supports such morale builders as openness and honesty. "Our program at TI is built on maximizing and improving relationships," says Coleman. "It improves employee interaction and builds a workplace atmosphere based on candor, fairness, integrity and trust. That strips away the filters; it lowers the barriers to communications. People can react very openly and freely with one another."

Hoffman compares a good ethics program to a Health Maintenance Organization. Just as companies encourage employees to get regular checkups from their physicians to nip any health problem in the bud, so does an ethics program help keep an organization morally fit. "It prevents risks," says Hoffman. "But more than that, it's good for a business. It builds the morale of employees, because employees like to work for corporations they think are ethically intended."

TI's Coleman thinks that ethics programs are so effective, they'll soon be a mandatory part of keeping a competitive advantage. "Like quality, ethics are simply free. It doesn't cost you anything, but the results are just incredible."

Ethics are free—a company only has to put forth the effort to communicate, educate and train its employee base on the importance of their decisions. An effective program costs very little—and, in the wake of the Barings scandal, we all know how much the absence of ethics can cost.